Guide to Changes of the Flat Rate VAT Scheme
Reading Time:
Small businesses which fall into the ‘Limited Cost Traders’ category will be primarily affected by the changes to VAT Flat Rate scheme. These significant changes will affect the amount of VAT small businesses will pay.
When will the new VAT changes come into effect?
The new VAT changes will come into effect from the 1st of April 2017
What will the new VAT Flat rate be?
HMRC will set the VAT rate at 16.5% for ‘Limited Cost Traders’. The effective rate is calculated at 19.8%.
Will all small businesses be affected?
Only small businesses that is deemed to be ‘Limited Cost Traders’ will be affected.
What is a ‘Limited Cost Traders’?
A ‘Limited Cost Trader’ refers to any business that spends less than 2% of its turnover on goods. All services are excluded from the ‘cost of goods’ calculation.
Please note that if any business spends less than £1000 on goods then they automatically fall into the ‘Limited Cost Trader’ category.
What items are excluded from the ‘cost of goods’ calculation?
The items excluded from the ‘cost of goods’ calculation include:
- Travel and accommodation expenses
- Business food and drink expenses
- Expenses for the running of a company vehicle
- Rent, Internet, Phone expenses
- Any Capital items
- Training and membership expenses
- Any donations and gifts
- Expenditure on services
Why are these changes Flat Rate VAT being made?
HMRC wants to tackle the exploitation of the scheme as it is currently being aggressively misused by many businesses.
What are the next steps a Small Business should take?
Our accountants are experts in their field and they can assess whether your small business will be affected by these changes. For a free consultation please contact us today!
